Strolling the Agora: How Some Retailers, Landlords, And Brokers Will Be Able To Profit Fom The Closing Of More Than 200 Borders Stores

Posted on February 21, 2011

This column, Strolling the Agora, will continue to be written as the mood hits, though Shopping Center Digest has ceased publication.

By Murray Shor

The latest shockwave to hit the shopping center/retail chain industry, Borders's bankruptcy filing, was not a surprise to many experienced dealmakers, especially some of the more astute landlords who have multiple tenant deals with this major book chain. They've had the company on its watch list for years.

The retailer stopped paying publishers last December for books shipped for the past holiday season; some estimate that they may receive only 25% of the dollars owed. Dealmakers also pointed out that Borders had begun cutting back and eliminating stores for years, since its high point of 1,329 outlets in 2005.

Some say that the latest plan to vacate roughly 4.9 million sq. ft. of retail space would be an especially cruel blow to those centers anchored by the superstores, and that the vacancy rate for this sector could increase from 4.2% to 9.5%. This, of course, is unrealistic because it assumes that these locations will remain empty; however, expectations are that many would be re-leased, used for other purposes besides retail, and may never become empty space.

Admittedly, though, the filing is damaging to an industry that still has record vacancies and much work ahead to re-tenant shopping centers that have lost so much equity over the last two years.

The larger owner-developers, such as Simon Property Group, General Growth Properties, Westfield, Developers Diversified Realty, Federal Realty, etc., may feel no pain from the bankruptcy since Borders is responsible for less than 1% of the total revenue of these operators.

To Close 30%

In essence, the book retailer listed $1.29 billion in debt, $1.27 billion in assets, and will be closing about 30% of its 642 stores– ranging from 12,895 sq. ft. up to 42,770 sq. ft.– in malls, power centers, strips and the like; the largest number, 35, are in California, with another 15 in the Chicago market. In its Chapter 11 filing, it blamed the economy, cost structures, and viability of locations, among other factors.

These factors include, but are not limited to: growth of internet sales by such competitors as Amazon.com and ebay, and not starting its own e-commerce site until 2008, years behind Barnes & Noble's; the deep discounting and competition from Walmart, Target and other retailers that caused its sales to fall; the introduction of digital books and being late in coming to market with its reader, such as Amazon did with Kindle and Barnes & Noble did with Nook; and that focusing its store expansion overseas had diverted away much its needed financial resources.

There is still a possibility that the initial 200+ underperforming outlets scheduled for closing could be expanded soon to 275.

Some $505 million in debtor-in-possession financing has already been arranged, said Borders. And, the chain stressed that it does not plan to close any of its more than 100 smaller units operating under the Waldenbooks name.

The bankruptcy or reorganization filing is the largest Chapter 11 filing since Circuit City's in 2008, and though a severe setback to this shopping center/retail chain industry, is not expected to have as much adverse impact since the economy – though shaky – has been improving slightly. In fact, a substantial number of retailers, landlords, brokers and others are already taking action to benefit from Borders's problems.

First In Line

Heading the list of dealmakers expected to do well from the bankruptcy is DJM Realty, which has been hired to dispose of the unproductive stores. It has already been approached by supermarkets, smaller chains and regional and local merchants, and users who are not retailers.

Depending on the lease terms and specific details for each location, these units could be sold to the landlord, the landlord could be paid a settlement to let Borders out of the lease, or the location could be leased by Borders to another tenant. And the bankruptcy court could also chime in on these issues.

Next to benefit could be the landlords–though some, admittedly, could also be severely damaged by the closings. Those with viable projects may be able to lease the stores to other retailers at a higher rent, break down the larger units into smaller stores rented to other national or local tenants at substantially higher rents per sq. ft., and re-position the shopping center to better reflect the changing demographics within the specific trade area.

With lenders more agreeable now to providing financing, getting rid of a tenant that could be considered a poor anchor may enable strapped landlords to obtain necessary cash to revitalize certain projects. In addition to updating the center for retailing, some projects could be converted to medical facilities, commercial offices, municipal uses as libraries, motor vehicle offices, warehouse space, residential development, etc., many paying a better and more reliable return to landlords.

A Strong Positive

Then, there are competitors such as Barnes & Noble, Books-A-Million, Indigo – and, of course, discounters like Walmart and Target – who could pick up customers from Borders's list of shoppers, or may be interested in one or more of the locations; retailers from various other categories – supermarkets, drug chains, large restaurants, electronic chains, office supplies, home improvement – are already considering many of these sites as viable for their own expansion plans.

And there are the brokers, eager, aggressive, knowledgeable about their specific markets with a substantial list of local and regional tenants, who have the expertise to put a deal together and earn a substantial commission from it.

A list of the locations targeted for closing has already been released. In addition, a list of 450 Borders and Waldenbooks locations in major shopping centers and malls is available from the Directory of Major Malls; visitors to its website may also download, for free, a partial list or sample of these stores.

So, yes, the first reaction to the announced bankruptcy is horror about the negative impact on the industry overall. However, as in all problems, those with the drive and viable solutions will be able to turn an initial negative into a strong positive.

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Strolling the Agora was a twice-monthly column discussing trends, issues of importance, and commentary on the leasing/development aspects of the shopping center/retail chain industry in the US and Canada. Called Strolling the Agora, it was a part of Shopping Center Digest, a newsletter founded in 1973 published until September 2010. The column provided expert insight into various retail focused topics. It was primarily authored by Murray Shor, Editor & Publisher as well as industry and veteran retail experts. A smattering of archived columns are presented here for your reading “pleasure”. It's an interesting “look back” at what were current hot topics at the time with regard to shopping center/retail industry focus, development and leasing expansions and processes, retail mix, opinions and more.

About Murray Shor:

Reporting and writing on the shopping center/retail industry since the late ’60s. Began as editor at Chain Store Age, founded Shopping Center World (now Retail Traffic), Shopping Center Digest “The Locations Newsletter” in 1973, and the Directory of Major Malls in 1979. Each issue of Shopping Center Digest contained a column called Strolling the Agora which provides commentary on trends, activity, issues of concern to development and leasing in the shopping center/retail industry.